Oil markets react positively to ease in US-China trade tensions

Oil markets react positively to ease in US-China trade tensions

Monitoring Desk

ABUL DHABI: An ease up in the US-China trade war could see oil prices moving up after US president Donald Trump announced a delay in tariffs, analysts said.

After weeks of sliding oil prices as a result of increasing US-China trade relations, the market received some positive news last week after the US said it would exempt certain Chinese products from tariffs as well as delaying the implementation of tariffs on products such as cell phones and laptops until December.

Oil markets closed on Friday with Brent trading at $58.64 and West Texas Intermediate on $54.87, both of which were up from the previous week after suffering weekly losses.

“The trade war between the US and China remains one of the main drivers behind global growth concerns. This in turn impacts the demand prospects for growth-dependent commodities ranging from crude oil and industrial metals to some agricultural products,” said Ole S. Hansen, head of Commodity Strategy, Saxo Bank.

“A prolonged trade war carries the risk of sending Brent crude oil lower towards $50 bpd while moves towards a solution could see it rally by 5-10 dollars. These prospects help to explain the whipsawing nature of the current market with the price pumping and dumping in response to trade tariff headlines from Washington and Beijing,” he added, highlighting how negative or positive news from US-China trade relations impact the oil market.

Hansen said that other factors affecting the oil market coupled with trade tensions included global supply demand, with Opec reducing its outlook on demand for oil in 2019 by 40,000 barrels in its latest monthly August report.

“Crude oil and the energy sector in general have struggled this quarter amid a weakening global demand outlook and a counter-seasonal rise in US crude oil and gasoline stocks.

“Opec members have since last November cut production by more than 3 million barrels/day and are currently producing the lowest volumes in five years. Voluntary cuts led by Saudi Arabia and involuntary cuts from Iran and Venezuela due to sanctions have been the main contributors to this reduction in production,” Hansen added.

“The limited success in boosting the price so far is due to the market’s at times intense focus on the prospect for lower demand as the trade war continues to take its toll on the outlook for demand from the world’s biggest consumers,” he said. (Gulf News)

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